The POU domain gene family has been shown to be important in tissue specific gene regulation during development. It has been proposed that POU class III transcription factors act in a combinatorial fashion to establish various neuronal phenotypes in the brain. We are investigating the role of two of these POU class III factors, XlPOU 1 and XlPOU 2, in early neural development. We have used XlPOU 1 as a molecular marker of the developing anterior nervous system, in addition to lineage mapping to study the action of retinoic acid (RA) on anteroposterior patterning in the embryo. We observed that with increasing doses of RA, the anterior structures of the brain were transformed progressively to more posterior ones. Additionally, with high doses of RA the normal cell fate of the A1 lineage was changed from a mostly neuronal phenotype to an epidermal one. Our data support the hypothesis that exogenous RA or a closely related derivative, causes posterior transformations in the embryo. To establish a functional role for XlPOU 2 in embryonic development, we have misexpressed/overexpressed the XlPOU 2 gene product by injecting synthetic XlPOU 2 mRNA into specific blastomeres of the 32-cell stage embryo (A1 or A4 cells). As a result of this perturbation, embryos displayed 2 degree axes, eyes that were fused to the midbrain, abnormalities in the outgrowth of cranial nerves IX, X, and XI, and alterations in cell fate. Thus, these experiments suggest an important role for XlPOU 2 in brain development.